Florida is one of the states Amtrak seeks to have as a client. URPA has created a draft plan for a beginning discussion on regional passenger rail in Florida. Fortunately, Florida is unique because it is so large, with heavy population centers at almost every beginning and end point in the state, and with major destinations such as Orlando in the middle.

Population figures and statistics for Florida as a vacation destination as included in this document.

March 27, 2008

Along with the silly season comes the usual avalanche of false or misleading information about various candidates.

Making the rounds this week is drivel about Senator John McCain and Amtrak.

The Bush administration, among other things it has been blamed for, has been unfairly labeled “anti-Amtrak” by many people, some of which are not fully informed.

Yes, the Bush administration has made some gaffes about Amtrak, especially coming from former Secretary of Transportation Norman Mineta. Mr. Mineta, who served the Bush administration during the tumultuous times of the Gunn stewardship of Amtrak, made a most unfortunate series of speeches and public statements about passenger rail which proved two realities: First, Mr. Mineta relied far too much on staff work, and didn’t do enough of his own research, and second, Mr. Mineta knew far more about air travel than passenger train travel. Neither of these things helped Mr. Mineta, nor the Bush administration.

Also, during one unfortunate discussion of an upcoming fiscal year budget for the federal government, the Bush administration sent a “zero budget” request for Amtrak to Congress. Much too late, the administration said it was trying to create a reasonable dialogue about Amtrak by stimulating debate on a budget number, but fumbled this concept badly.

The resulting debate caused by this nasty incident was greatly helpful, and resulted in the currently Amtrak reauthorization before the Senate, and soon before the House of Representatives.

Many people immediately (aided by NARP) jumped to the conclusion the Bush administration was “anti-Amtrak” because of the bad timing of the zero request and following explanation which came too late.

On top of this, many in the United States Department of Transportation demanded Amtrak become more fiscally responsible (gasp!) and take some extreme measures to reel in certain costs, including food and beverage service costs. Amtrak, not being the most creative corporate soul on the planet, took completely the wrong path to solving this problem, and slashed budgets and food service, much of which it is now trying to restore (for the third time in history; will these people ever learn?).

Again, instead of looking to Amtrak to become more responsible and self-sufficient, many people sadly just proclaimed the Bush administration “anti-Amtrak,” and continued on their often hate-filled way.

Too many people never bothered to look into the reality of the situation, and too many people were willing to take the word of people and organizations who were more interested in promoting their own positions or organizational interests instead of getting to the true heart of the problem, which is an aching need to fix Amtrak. Once Amtrak is fixed, then all of these other problems will begin to melt away.

Senator McCain, the former Chairman of the Senate Commerce Committee, which oversees Amtrak and other transportation modes, has often been labeled “anti-Amtrak” because he has reacted to bad numbers fed to him by Amtrak, and the perceived dismal performance of one of the Amtrak trains which runs through his state of Arizona, the Sunset Limited.

Amtrak through the years has constantly allowed the Sunset to be misconstrued and misunderstood. Nobody has taken the time to look at the Sunset and wonder, if it was a real daily train instead of a tri-weekly travesty, would it be as healthy as other long distance trains? Yes, of course it would be. But, Amtrak has consciously chosen to keep the Sunset in a poor position, either by continued tri-weekly operation, or unceremoniously lopping off the eastern end of the Sunset’s route after Hurricane Katrina in 2005, where 46% of the train’s revenue was produced east of New Orleans and into Florida.

So, as Senator McCain continued to look into Amtrak, and especially Amtrak in his home state, all he saw were bad numbers and even worse forecasts. Mr. McCain acted in the same manner any frugal or responsible businessman would, and said, “We’ve go to do something about this problem. If it’s been going on for this many decades, and only getting worse, why are we putting up with this mess?”

And, he was 100% correct, based on the only information he had, originating from Amtrak, which focuses the vast majority of its resources on the Northeast Corridor and other cost-sucking routes, instead of a long distance system which throws off positive cash flow on most every route.

Here’s something most knee-jerk reaction people haven’t thought of: Amtrak lives and dies by acts of Congress, not acts of the White House and Executive Branch of the federal government.

When Senator McCain was Chairman of the Senate Commerce Committee, he was in a far greater position to cause harm to Amtrak, since he had a very big say in Amtrak’s purse strings and operations and approval of board appointments, than he will as President of the United States, if elected. A president can only make recommendations to Congress, not enact laws, nor create money, as Congress does.

Is it likely Mr. McCain will personally change his views on Amtrak and passenger rail? Probably not, based on the previous information he has been fed for years, without opposing or corrected information. That really doesn’t matter. What matters is what a McCain administration Secretary of Transportation, Federal Railway Administration Administrator, or high level political appointee bureaucrats in those two federal department will do. They can be educated and made to understand the possibilities beyond knee-jerk reactions.

Let’s take a reality check here, too. There are less than a dozen journalists in this country fully qualified to write about passenger rail on a non-biased basis. Rarely, does any journalist do their own digging into Amtrak facts and figures and come to conclusions not reached by the hand-outs from Amtrak. With the exception of one trade magazine, Progressive Railroading, and one major railfan based magazine, Passenger Train Journal, does anyone “get it right” about passenger rail and Amtrak? Other than these two publications, all of the others too readily take what Amtrak hands them and turn it into gospel. There is little, if any, independent reporting, and far too much opinion and concocted facts stem from the “if we lose Amtrak, we lose everything forever, so we better support Amtrak, no matter what” sky-is-falling crowd.

Any publication, whether it’s this space, or anything else from any other organization or publication should be taken, digested, and used to form honest, independent opinion, not just to parrot someone else’s agenda.

A few sad realities about Washington and Capitol Hill (regardless of nominal party control of either branch). Amtrak has been “caught” and its phony numbers deconstructed on numerous occasions. Guess what? It doesn’t matter. There is a sufficient combined number of Pavlovian foamers, NEC and geographic-entitlement subsidy-seekers, and union automatons — in both parties — to keep the funds flowing regardless of the facts, albeit at a life-support/slow-motion-liquidation level. Thus Reality Number 1 is, the facts — and the numbers — don’t matter. There will also be no key players in leadership positions who can (or will try to) mitigate this pattern as long as the Dems retain Congress. Remember, even when the Warrington glide-path/Acela revenue miracle fairy tale (and that’s a kind description) fell apart in shreds under the ‘97 reform law, even a Republican Congress did virtually nothing about it. (I would still argue that contract-termination of Acela was the financially rational and fiduciary thing for the Amtrak directors to do, but that would have taken away Acela’s chief function — being a propaganda vehicle.)

Second, whether he knows it or not, and even if he wins the White House, McCain will in all probability have no substantive impact on the dysfunctional Amtrak status quo — at least as to funding. Amtrak funding (in the hypothetical form of presidential budgets) has been reduced and even zeroed multiple times since the mid-’80s. Congress ignores it — reflecting Reality Number 1 above. The only way McCain (or any president) could “enforce” a reduction or elimination of Amtrak funding would be to veto the entire DOT appropriation. (I am assuming the presidency will continue to be handicapped by the absence of a line-item veto.) No president has had the backbone to do that, and even if one did, the status quo coalition would bring us back to Reality Number 1, and an almost certain override. A McCain would be more likely than his competitors to veto retrograde non-appropriations legislation that is worse than the status quo. (We’ll probably get a chance to see W sign that kind of product this year.) Do not expect much follow-through from McCain on Amtrak though. His track record regarding the 1997 law was one, to use an air combat phrase, of “fire and forget.”

Responsible voters will weigh each and every issue and it’s place in the political firmament and how our country will help shape the world in the next four years.

Should your vote be solely based on one very small government program, known as Amtrak? Congressional power is far more important to the future of Amtrak than executive power. Vote your conscience for the big picture, not the dysfunctional picture that always results from viewing Amtrak.

A recent meeting in New Orleans involving various state representatives and an honorable high Amtrak operating official focused on service east of New Orleans. The Amtrak operating official reportedly indicated he was in favor of restoration of passenger train service east of New Orleans, but it would ultimately be up to Amtrak’s Board of Directors to make a final decision.

Keep in mind NOTHING comes before the Amtrak board unless it has gone through Amtrak’s executive bureaucracy. If a project has been blessed by Amtrak executives, it is usually blessed by the board of directors.

If this proves to be true, it would involve full train service including sleepers and food service cars.

We will keep you posted of any further developments or other verifiable information.

No. 7

January 25, 2008

Financing the Nation’s Infrastructure Deficit

“…We have to rebuild America. I am proposing a National Infrastructure Reinvestment Bank that will invest $60 billion over ten years.” — Sen. Barack Obama, February 13, 2008

With this succinct phrase, presidential candidate Sen. Barack Obama has injected a new idea into the ongoing debate about infrastructure financing. Instead of endorsing new taxes or direct user fees to fund the nation’s infrastructure deficit, he has embraced the concept of a federal capital infrastructure budget. It’s an idea that also has been advanced by Senators Christopher Dodd (D-CT) and Chuck Hagel (R-NE) in their bill, the National Infrastructure Bank Act of 2007. Obama, by virtue of his prominence as a presidential candidate, has automatically ensured that this novel financing concept will figure prominently in the national dialogue about the future of infrastructure investment. The need for fresh thinking about infrastructure financing has received a further boost from an influential coalition launched last month by Governors Ed Rendell and Arnold Schwarzenegger and Mayor Bloomberg (see below).

The National Infrastructure Bank Act of 2007

The Dodd-Hagel bill (S.1926 and HR.3401) would create a new mechanism through which the federal government would finance infrastructure projects of substantial regional or national significance. The bill proposes to create an independent national bank financed with a $60 billion bond issue, the same amount as proposed by Sen. Obama. Long-term bonds (up to 50 years) issued by the bank would align the financing of infrastructure investments with the benefits they create. The repayment of those bonds would allow the Bank to be self-financing. In other words, the dedicated bond fund would create a de facto national capital infrastructure budget.

The Bank would give preference to large “capacity-building” infrastructure projects that are not adequately served by current financing mechanisms and existing formula grants. Projects “of substantial regional and national significance,” would include roads, bridges, mass transit systems and wastewater treatment facilities. Candidate projects would be brought to the Bank’s attention by state and local sponsors. Once a level of investment in a given project has been determined, the Bank would develop a financing package backed by the full faith and credit of the Federal Government.

The Rohatyn-Rudman Report

Sen. Obama’s proposal and the Dodd-Hagel bill have their conceptual antecedents in a 2004 report of the Commission on Public Infrastructure created under the auspices of the Center for Strategic and International Studies (CSIS).The report, authored by the Commission’s co-chairmen, Felix Rohatyn and Warren Rudman, proposed a National Investment Corporation (NIC) that, like Obama’s proposed Infrastructure Bank, would have the authority to issue federally guaranteed 50-year bonds to finance large-scale infrastructure projects. (The authors summarized their proposal in a December 13, 2005 op-ed in the Washington Post entitled “It’s Time to Rebuild America.”)

In 2006, the Commission on Public Infrastructure reinforced its proposal with a set of “Guiding Principles for Strengthening America’s Infrastructure.” In a preamble, the Commission noted that the nation is both under-investing in infrastructure and investing in the wrong projects. “New investments are critically needed,” the Commission stated, “but we lack the policy structures to make the correct choices and investments.” The proposed NIC, the authors suggested, would provide the needed allocation mechanism. Among the statement’s signatories were Senators Dodd and Hagel, and Governors Rick Perry (TX), Arnold Schwarzenegger (CA), and Tom Vilsack (former governor of Iowa).

Build America Bonds

A dedicated infrastructure program backed by a large public bond issue has been also behind the “Build America Bonds” Act (S. 2021), introduced by Senators John Thune (R-SD) and Ron Wyden (D-OR) in September 2007. The senators have proposed raising $50 billion for transportation infrastructure through a one-time bonding program. In lieu of interest, bond holders would receive tax credits. The bonds would be available to corporate and individual investors in different denominations, “providing all Americans with the opportunity to invest in upgrading America’s transportation infrastructure.”

“Building America’s Future” Coalition

Reinforcing the call to rebuild the nation’s aging infrastructure is a coalition formed by Pennsylvania Governor Edward Rendell, California Governor Arnold Schwarzenegger, and New York City Mayor Michael Bloomberg. In announcing the coalition, the three political leaders stressed that this is an issue that crosses party lines. The coalition will work with both nominated presidential candidates and the Republican and Democratic parties “to ensure that the next president understands the enormity of the infrastructure crisis, is committed to increasing federal funding, and that both party platforms reflect these commitments.”

At a press conference on February 24 held in conjunction with the winter meeting of the National Governors Association, the three coalition co-chairmen were joined by six other governors: Florida’s Charles Christ (R), New York’s Eliot Spitzer (D), Maryland’s Martin O’Malley (D), Arizona’s Janet Napolitano (R), Massachusetts’ Deval Patrick (D) and New Jersey’s John Corzine (D). All of them emphasized the same theme: the need for national infrastructure investment. In the words of Gov. Spitzer, “we will do our part but we need a partnership with the federal government.” Or, as Gov. Schwarzenegger put it, “it’s time for the federal government to step up and do its share.”

Not everyone is enamored of the idea of a centrally directed program of infrastructure investment. Reason Foundation’s Robert Poole, for example, thinks there is no need to expand the role of the federal government or further increase the national debt to substitute for what dozens of private infrastructure investment funds are willing, able and eager to do. “Large-scale, strategic investments in highways, bridges, water and wastewater systems are all precisely the kinds of thing that the capital markets are well-equipped to fund,” he contends. He is not alone. Transportation Secretary Mary Peters likewise has argued in favor of relying more heavily on market forces to direct private investment into needed infrastructure. “Unleashing the investment locked in the private sector by partnering with business is the most efficient path to the transportation future this country needs and deserves,” she said in a recent speech to the Associated General Contractors. The Rohatyn-Rudman Commission on Public Infrastructure also recognized the need for the private sector to play a more central role in infrastructure provision. “Entrepreneurs should be encouraged to put their capital at risk in order to create infrastructure that meets the needs of users,” the Commission stated in its Guiding Principles.

And indeed, large portions of the needed new capacity in major travel corridors could be probably financed with a combination of private equity capital and bonds backed by toll revenue. As many as 14 states are currently considering toll revenue financing as a means of expanding road capacity. But new facilities in sparsely populated states and less heavily traveled corridors would still need public funding. Should the source of that funding be higher gasoline taxes, as recommended by the congressionally-chartered National Transportation Policy and Revenue Commission? Or should the needed funds be raised through a National Infrastructure Bank and federally guaranteed bonds?

Although the Coalition has been careful not to endorse the National Infrastructure Bank or the concept of a federal capital infrastructure budget, Sen. Obama’s embrace of these concepts virtually guarantees that they will receive serious attention in the presidential campaign as an alternative to higher fuel taxes.

No. 6

February 17, 2008

Urban Rail Transit and Freight Railroads: A Study in Contrasts

Investment in Urban Rail Transit Has Peaked

Two years ago we suggested that the era of multi-billion dollar system-building investments in urban rail transit is coming to an end. We wrote:

“The 30-year effort to retrofit American cities with rail infrastructure, begun back in the Nixon Administration, appears to be just about over. To be sure, federal capital assistance to transit will continue, but its function will shift to incrementally expanding existing rail networks and commuter rail services rather than embarking on construction of brand new rail transit systems. (”The New Starts Program is Changing Its Emphasis,” March/April 2006).”

The newly released Fiscal Year 2009 Budget Proposal of the U.S. Department of Transportation confirms the truth of that speculation. Of the 30 transit capital projects proposed for funding in FY 2009 17 are rail projects and only two among them are new projects recommended for full funding grant agreements (FFGA) (the projects in question are light rail transit extensions in Denver and Seattle). The remaining 13 projects are modestly funded “Small Starts,” of which 11 are Bus Rapid Transit (BRT) projects. Twelve additional rail projects are in Final Design or Preliminary Engineering, for a total of 29 rail projects in construction or the engineering pipeline. By contrast, seven years ago, the FY 2002 budget listed a total of 69 rail projects in construction or engineering stage (NewsBrief, “The Prospects for Rail Transit,” Sept/Oct 2001.) Even as recently as FY 2007, seven new rail projects were recommended for FFGAs.

What accounts for this profound transformation in the federal transit program? The simplest and most obvious explanation is that after 30 years of sustained federal investment in urban rail systems— an investment program that resulted in the construction of 22 new light rail systems and 5 new heavy rail systems— the New Starts program is beginning to run out of cities that can afford or justify cost-effective rail transit investment. Norfolk, VA, has been the only new urban area to have joined the “club” of rail cities in recent years. The only other cities that can hope to join the rail club in the foreseeable future are Charlotte, NC and Orlando, FL, (their projects are currently in preliminary engineering.) The bulk of future investment in rail transit will almost certainly take the form of incremental additions to existing rail networks.

Also responsible for the decline in rail projects is the rising attraction of the more affordable bus rapid transit (BRT) alternative with its incentive of a simplified FTA evaluation and rating process. Indeed, a recent GAO report noted that “bus rapid transit has become the most common transit mode for projects in the New Starts pipeline.” (Future Demand Is Likely for New Starts and Small Starts, July 2007). While rail projects still represent a major share of the latest New Starts budget (87.5% of the $1.62 billion capital investment budget in FY 2009 ), the share of capital assistance devoted to rail projects is expected to decline as existing major rail grant commitments are fulfilled and the pipeline fills with more affordable “Small Starts” projects of the BRT variety.

Freight Railroads Are Undergoing a Dramatic Expansion

In the meantime another rail sector — the freight railroads— is experiencing unprecedented expansion. “For the first time in nearly a century railroads are making large investments in their networks,” wrote Daniel Machalaba in a well-documented front-page article in the Wall Street Journal (”New Era for Rail Building,” WSJ, February 13, 2008). “Their campaign is altering the corridors of American commerce, more so than any other development since interstate highways spread to the interior,” Machalaba noted. Since 2000, freight railroads have spent $10 billion to expand track, build freight yards and buy rolling stock and they have $12 billion more in upgrades planned. “It’s been a century since railroads embarked on a similar spate of capital investment,” Machalaba observed.

The catalyst for this burst of investment has been the rapid growth of international trade and its rising demands to move containers of finished goods from ports to major cities. Demand for rail service increased sharply when Asian imports intensified starting in 2003. While long-haul trucking continues to be the backbone of the nation’s land-based freight system, railroads are stepping in to supplement the goods carrying capacity in many corridors. Burlington Northern was the first to begin expanding the physical capacity of its rail network by adding a second set of tracks to portions of its Chicago-Los Angeles Transcon line, now nearing completion. Union Pacific followed with an upgrade of its Sunset Corridor from Los Angeles to El Paso, Texas. Norfolk Southern is improving access to the ports of New Orleans and Norfolk by expanding the capacity of its Crescent (New York- New Orleans) and Heartland (Chicago-Norfolk) rail corridors. CSX is doing the same in its Chicago-to-Florida Southeast Corridor.

What is remarkable, is that this massive expansion and modernization of freight rail infrastructure has been accomplished without the help of any public funds. From 1980, when the Staggers Rail Act partially deregulated railroads, through 2006, railroads have invested some $400 billion of private capital in their systems according to the Association of American Railroads (AAR). Currently, railroad companies are investing 18 percent of their revenue in new infrastructure, more than any other industry, says AAR. They are able to do so because dramatic increases in freight volume due to booming international trade have led to record earnings. Forecasts are for continued profitability, with railroads prepared to continue funding internally the vast majority of its planned rail infrastructure investment.

Could highways become more like freight railroads? Could future highway infrastructure be financed with user fees and private capital, just like rail infrastructure? Or is the notion that highways are a public good to be supported primarily by taxpayers too deeply ingrained to allow for such a radical change in approach? The debate on this score has just begun and its eventual outcome is uncertain. Ultimately, the answer may hinge less on how Congress decides to fund the federal contribution to the surface transportation program than on how governors, state legislatures and local governments across the nation decide to approach the long term challenge of financing new road infrastructure. The signals from many state capitals suggest that user fees in the form of tolls are increasingly being considered as the principal means of financing future highways and bridges. Governors and legislative committees in as many as 14 states are contemplating adding tolls to their arsenal of revenue measures. This does not mean that the need for fuel taxes will disappear. The gas tax will continue to be needed to fund the ever-growing requirements to preserve and modernize the nation’s aging road facilities. However, finding the resources to pay for new capacity will require a more entrepreneurial approach, with the freight railroads serving as a possible financing model. User fees in the form of tolls may turn out to be the most sensible way to ensure the long-term integrity of the highway system without imposing an unacceptable tax burden on the American people.

A visit to the web site confirms all types of accommodations, along with full dining car service is shown for sale. Checking the same trip for March 31, 2008, only a combination of coach rail and bus connections are available.

This can ONLY happen by the hard and diligent work of the Union Pacific Railroad and its profound determination to reopen its north/south rail line in Oregon.

As of press time for this space, at 10 P.M. on the East Coast, no announcement has been forthcoming from Amtrak.

It looks like the Coast Starlight is back in business. It has only been running a coach service between Los Angeles and Sacramento since the end of January after the mudslide on Oregon north of Klamath Falls that wiped out the Union Pacific right of way on the side of a mountain.

March 10, 2008

A $400 Billion Solution?

“There’s upward of 400 billion dollars available in the private sector right now for infrastructure investment.” Secretary of Transportation Mary Peters addressing the nation’s Governors at the White House, February 25, 2008

Secretary Peters’ claim was greeted with skepticism in some quarters, but after consulting a number of financial sources we have come to the same conclusion as Mrs. Peters. Dedicated infrastructure funds have indeed raised impressive sums of money in the recent past. After leveraging the estimated pool of equity capital through bank loans and the capital markets, the funds available for infrastructure investments meet or may even exceed Secretary Peters’ estimate. The question that casts a shadow on this upbeat picture, however, is how much of this capital will end up in other parts of the globe because ill-advised barriers against foreign investment will discourage or prevent much of the equity capital raised abroad from being invested in this nation’s transportation assets.

As for the amount of private capital available for investment in infrastructure, the facts are indisputable. A McKinsey survey estimates that the world’s 20 largest infrastructure funds have raised $100 billion in 2006 and 2007 alone (Robert N. Palter, Jay Walder and Stian Westlake, How Investors Can Get More Out of Infrastructure, The McKinsey Quarterly, March 2008). The Financial Times reports that equity capital available for investment in infrastructure ranges from $50 billion to $150 billion (Infrastructure M&A, December 30, 2007, http://www.ft.com). Michael Wilkins, managing director of S&P’s European Infrastructure Finance Group, estimates that the amount of equity capital raised globally for infrastructure investments is in the range of $100 billion to $150 billion. Mark Florian, Managing Director at Goldman Sachs and Dana Levenson, Managing Director and Head of North American Infrastructure Banking at The Royal Bank of Scotland are both of the opinion that the amount of available capital for infrastructure investments, after leveraging, may reach $500 billion or more. That’s a pretty solid consensus.

Probably the most detailed and authoritative study of dedicated infrastructure funds has been done by Stanford University’s Collaboratory for Research on Global Projects under the direction of Ryan J. Orr (The Rise of Infra Funds, Project Finance International — Global Infrastructure Report 2007, June 2007). Orr reports that a “tidal wave” of 72 new infrastructure funds have been launched in the last two years. Collectively, these funds, he estimates, have raised in excess of $120 billion. Assuming a leverage in the range of 65-80%, not uncommon in infrastructure deals these days, the estimated pool of equity capital could support investments in the range of $340 to $600 billion. (The Indiana Toll Road lease for $3.8 billion was financed with only 19% equity capital)

Of the 72 funds in the Stanford University project’s data base, 31 funds have an estimated value each of one billion dollars or more. The two largest funds, Borealis and the Canadian Pension Plan (CPP) have $10B and $7B, respectively, allocated to infrastructure investing. Other large dedicated infrastructure funds, each in excess of $3 billion, include Goldman Sachs Infrastructure Partners, Macquarie Infrastructure Partners, Ontario Teachers Pension Plan, Alinda Capital Partners, Citigroup Infrastructure Investors , AIG Highstar Capital, Morgan Stanley Infrastructure, JP Morgan Partners and Babcok & Brown Infrastructure Fund.

Of course, not all of the equity capital raised for infrastructure is destined for transportation. Infrastructure funds also target power plants, water supply and treatment facilities, pipelines, and natural gas production and distribution networks. However, many funds tend to favor transportation infrastructure (roads, bridges, airports, seaports, transit systems and parking facilities) because transportation assets generate strong demand even in times of slower economic growth and produce steady and predictable cash flows. Transportation-related investments appeal especially to long-term investors such as pension funds and insurance companies, which require stable, long-term income-oriented investments to match their long term- liabilities and payout obligations.

Most of the infrastructure funds have a global reach, although many of the funds focus on mature markets in the developed countries where political risks and legal and regulatory uncertainties are less severe. The United States has lately become a favorite investment target because of the perception that a large percentage of its existing transportation infrastructure needs rehabilitation, modernization and expansion. However, Latin America, and more recently India, the Middle East, Southeast Asia and China, are also considered to offer attractive investment opportunities. Indeed, a majority of transport-related projects identified in the McKinsey report and those listed in the Public Works Financing annual survey of International Major Projects, are located outside the OECD countries.

The Rise of the Infrastructure Funds

The rapid rise of infrastructure funds can be explained by the confluence of several factors: + Growing population, rising incomes, global economic interdependence and a desire for more personal mobility are creating pressures to expand the capacity of infrastructure and, in particular, transportation infrastructure. The United States alone needs $1.6 trillion worth of new infrastructure over the next five years according to the American Society of Civil Engineers (ASCE). Transportation-related infrastructure will demand an annual infusion of at least $80 billion and as high as $225 billion by some estimates. Global demand for new infrastructure is expected to run into many trillions of dollars. + Much of the infrastructure deficit is expected to be financed with private capital, as financially-strapped central governments increasingly embrace public-private partnerships as a means of developing and operating all manner of infrastructure. For governments, private infrastructure funds may offer an important new source of capital for investment in much needed transportation facilities. The United States is a relative newcomer to this field, but the realties of a growing infrastructure deficit and funding shortfalls, we think, will inevitably drive state governments to embrace the use of private capital in infrastructure development (for a discussion of these trends, see, Infrastructure 2007, A Global Perspective, Urban Land Institute/Ernst & Young, 2007; and Closing the Infrastructure Gap, Deloitte, 2007). + In an economic environment of high liquidity and low interest rates, investments in infrastructure have offered attractive yields with relatively little risk. Most infrastructure deals include rate increases to keep pace with inflation, thus reducing or eliminating inflationary risks. + Infrastructure assets offer opportunities for structural, management and operational improvements which can enhance asset performance, stimulate demand, produce more income and hence increase returns on the initial investment. This assumes, of course, that the infrastructure fund managers have the knowledge and expertise to enhance the value of the acquired assets — or strike a fruitful partnership with experienced manager-operators as, for example, Macquarie has done with Ferrovial’s Cintra. A McKinsey analysis of 60 private equity deals showed that over 60 percent of the value they created arose from improved performance of the acquired asset.

Potential Obstacles

Casting a shadow on this rosy scenario are several potential threats. First, in the face of the spreading credit crisis, banks may be less willing to lend the high cash multiples that have made past infrastructure deals profitable. A rise in long-term interest rates could reduce the attractiveness of infrastructure investments, which rely on substantial leverage to produce attractive returns. Should interest rates go up, an increasing share of operating revenue would go to service outstanding debt, thus reducing yields on invested capital. However, most analysts we have consulted believe that the current credit crunch will not be of a long duration and will not fundamentally affect the prospects for infrastructure investments. A report by Probitas Partners, advisers to pension fund managers, predicts an increase in private equity commitments to infrastructure in 2008 (Investing in Infrastructure Funds, September 2007).

Second, the multiplicity of new entrants into the field of infrastructure investments has created an intensely competitive environment. New deals coming to market have not kept up with the growth in the supply of investment capital, resulting in vigorous bidding for existing assets and new assets under development. This is driving up their prices, reducing yields and lowering the attractiveness of investments in infrastructure as compared to investments in other asset classes.

Finally, there is a potential threat of legal and regulatory barriers — not only to foreign investments but also to the concept of private toll concessions. Although a recent GAO report (GAO-09-44) has given the concept of public-private partnerships a positive verdict, skepticism and constraints on private sector involvement, ostensibly on the grounds of “protecting the public interest,” can be expected on Capitol Hill from House Transportation & Infrastructure Committee Chairman James Oberstar (D-MN) and some members of his committee. The upcoming reauthorization of the surface transportation program may thus become the battleground on which the idea of private investment in transportation infrastructure will be fought out. It is a challenge that the financial community should take with utmost seriousness.

We implore Mr. Weiderhold to act impartially and decisively at the earliest possible moment.

All of this relates to the January annulments of Amtrak’s Coast Starlight due to snow and mudslides in Oregon along the Union Pacific Railroad owned route of the Starlight.

Paul Dyson, President of the Rail Passenger Association of California, wrote two letters to Amtrak President and CEO Alex Kummant about the situation, seeking Mr. Kummant’s assistance in restoring as much of the Coast Starlight route as soon as possible.

Mr. Kummant replied to Mr. Dyson’s letters, and a reply was also received by RailPAC from who appears to be J.W. Deely, Amtrak’s General Superintendent in Oakland, California. Amtrak says the letter allegedly from Mr. Deely is a fake.

Mr. Dyson has made all of his correspondence to an from Mr. Kummant public information, and has posted everything on RailPAC’s public web site, http://www.railpac.org.

Included in the correspondence posted was this letter which appeared to be from Mr. Deely, which arrived in Mr. Dyson’s hands on Amtrak letterhead with an Oakland return address, and with a pen ink on paper signature.

Here is the letter from Mr. Deely to Mr. Dyson which Amtrak says is a fake.

January 24, 2008

Mr. Paul J. Dyson
President Rail Passenger Association of California
1017 L Street — PMB 217
Sacramento, California 95814

Mr. Dyson:

This letter is in response to your e-mail message to Amtrak President Alex Kummant dated January 22, 2008 wherein you expressed your concern over Amtrak’s decision to annul Coast Starlight service between Seattle, Washington and Los Angeles, California indefinitely pending cleanup of a mudslide which severed the Union Pacific mainline near Frazier, Oregon.

The decision to completely suspend all service was not an “opportunist decision to save a few operating dollars” or a “seemingly reflexive jump to no alternative service” as stated by Mr. Ross Capon [Executive Director of the National Association of Railroad Passengers in Washington] in his e-mail message of January 22. Rather, it was a sound business decision based on several factors ranging from economics and service impacts to passenger inconvenience and political fallout. However, in considering all factors, it is still in the best interests of the corporation to move forward with our original plans to suspend service over the entire route. Furthermore, given the recent award handed down from the President’s Emergency Board-242 which allows for retroactive pay to agreement covered employees, Amtrak must consider all possible avenues with regard to cost savings. Additional service cuts are also presently being considered to accommodate the award on a system-wide basis.

With regard to your recommendation for maintaining a truncated service featuring midweek packages catering to overseas tourists, the logistics and complexities involved far outweigh any potential revenue or repeat ridership which may result. I have enclosed a copy of the e-mail correspondence between my office and Messrs. Kummant, Crosbie and Phelps regarding the Coast Starlight service disruptions for your review. Hopefully this information will provide additional insight to this important matter.

Sincerely,
/s/ J.W. Deely
General Superintendent

cc. R.H. Phelps

The Mr. Crosbie referred to is William Crosbie, Amtrak’s chief operating officer, and R.H. Phelps works directly for Mr. Crosbie in operations, and is considered by many to be one of Amtrak’s most able and honorable executives. Mr. Crosbie reports directly to Mr. Kummant, and Mr. Phelps reports directly to Mr. Crosbie.

The e-mails enclosed with the letter in question from who Amtrak claims is not Mr. Deely seem to be genuine, with return Amtrak e-mail addresses. They are routine internal communications, more or less confirming in writing whatever oral conversations had taken place.

Union Pacific Railroad, known for its corporate grit and determination to fix trestles which have been destroyed and track that has been covered by mudslides, continues to work diligently to get its railroad line reopened in Oregon, so its freight trains and the Coast Starlight may again traverse the Left Coast from Seattle to Los Angeles unimpeded. At this point, April is the earliest anyone is predicting for the line reopening.

Bill Lindley Webmaster
Rail Passenger Association of California & Nevada (RailPAC)
1017 L Street — PMB-217
Sacramento, CA 95814
railpac@wlindley.com

Mr. Lindley:

I am writing to you regarding posting of a letter on your website, http://www.railpac.org, allegedly authored by Joe Deely on Amtrak stationery. Please be informed that the letter is a fake and not created by Amtrak. Accordingly, please immediately remove it from your website and provide a retraction. As you are aware, the letter holds Amtrak in unfavorable light and is defamatory. We anticipate your prompt compliance with our request so that legal action may be averted. Thank you.

Sincerely,
/s/
William Herrmann
Managing Deputy General Counsel Litigation Amtrak

As requested by Amtrak, the alleged letter from Mr. Deely was immediately removed from the RailPAC web site, and a retraction was posted.

What unfavorable light is Mr. Herrmann referring to? What is defamatory? Is Mr. Herrmann just throwing around legal jargon to intimidate the officers of RailPAC?

Could Mr. Herrmann be referring to the part of the letter where supposedly Mr. Deely says, “it was a sound business decision based on several factors ranging from economics and service impacts to passenger inconvenience and political fallout. However, in considering all factors, it is still in the best interests of the corporation to move forward with our original plans to suspend service over the entire route. Furthermore, given the recent award handed down from the President’s Emergency Board-242 which allows for retroactive payt to agreement covered employees, Amtrak must consider all possible avenues with regard to cost savings. Additional service cuts are also presently being considered to accommodate the award on a system-wide basis.

With regard to your recommendation for maintaining a truncated service featuring midweek packages catering to overseas tourists, the logistics and complexities involved far outweigh any potential revenue or repeat ridership which may result.”?

Why was a reference made to “political fallout”?

Especially, why, was the reference “recent award handed down from the President’s Emergency Board-242 which allows for retroactive pay to agreement covered employees, Amtrak must consider all possible avenues with regard to cost savings. Additional service cuts are also presently being considered to accommodate the award on a system-wide basis.” ever made, and is this a harbinger of highly unpleasant things to come throughout the Amtrak system? Was no one supposed to know Amtrak may or may not be planning service cuts in retaliation to its employees wanting a union contact settled that had been in suspense for eight years? Did this phrase somehow undercut what Amtrak has been telling Congress in Washington what it needs to pay for the new union contract?

Did Mr. Deely act impulsively and out of school, and then try to cover up his impulsiveness by saying he did not write this letter? Is there a special relationship of the “good old boy network” going on between Mr. Deely and Mr. Herrmann, and one is acting to protect the other? Has Mr. Herrmann been duped into acting by someone before he made a sound legal decision based on facts rather than a breathless request for help from Oakland?

There are so many unanswered questions to this whole mess, and only someone well respected like Amtrak Inspector General Fred Weiderhold can get to the bottom of this situation.

Rail Passenger Association of California

28 February, 2008

Mr. Fred Weiderhold, Jr Inspector General NATIONAL RAILROAD PASSENGER CORPORATION P.O. Box 76654 Washington, DC 20013 6654

Via FAX to 215 XXX-XXXX

CORRESPONDENCE BETWEEN RAILPAC AND AMTRAK RE-COAST STARLIGHT SUSPENSION - CLAIM THAT LETTER FROM J. DEELY IS FAKE - REQUEST FOR INVESTIGATION

Dear Mr. Weiderhold:

Our organization, Rail Passenger Association of California (RailPAC) is a non-profit advocacy group staffed entirely by volunteers. We have recently been in correspondence with Amtrak President Mr. Kummant over the suspension of “Coast Starlight” service. Here’s a chronology of events to the best of my knowledge. Please note that RailPAC has a P.O. Box in Sacramento, I am domiciled in Burbank, and so letters to me may be delayed depending on when one of our members can pick them up and forward them to me.

1/22/08: I faxed my first letter to Mr. Kummant urging reinstatement of the Coast Starlight with a bus bridge.

1/24/08: A letter was sent to me from Amtrak’s Oakland office over the signature of J. Deely expressing why Amtrak had suspended the service. The letter included attachments which are reprints of internal e-mail documents including my letter to Mr. Kummant.

1/28/08 A letter was sent from Washington signed by Alex Kummant explaining the Coast Starlight decision.

2/11/08:I wrote a second letter to Mr. Kummant objecting to the Amtrak decision, and also referencing Mr. Deely’s letter.

2/15/08:A reply was sent from Mr. Kummant.

2/15/08:Correspondence was posted on RailPAC website for our members and supporters.

2/20/08 An e-mail was sent from Mr. William Herrmann, Deputy General Counsel, alleging that the Deely letter was a fake and requesting us, under threat of legal action, to remove it from our web site. The letter was so removed immediately.

We at RailPAC feel that we have been the victim of a fraud. Based on the representations of Amtrak’s Mr. Herrmann the fraud was perpetrated by a person or persons unknown. The letter we received over Mr. Deely’s signature is on Amtrak stationary with the correct Oakland address. It was written so quickly after my first letter was sent to Mr. Kummant and before I published the contents and before it was posted on our website that it must have come from inside Amtrak. No one has denied that the attached e-mails are genuine. By being forced to withdraw this letter and publish a retraction we have had our credibility questioned.

Mr. Weiderhold, in the interest of preventing a recurrence of this most regrettable incident I request that you carry out a full investigation to discover beyond doubt whether the “Deely” letter is indeed a fake, and if not, then who is responsible for sending it and the accompanying Amtrak e-mails. If you need any more information or assistance with this enquiry, please do not hesitate to contact me.

Yours faithfully,
/s/ Paul J. Dyson President
Rail Passenger Association of California

Cc: RailPAC Board
Richard Silver, RailPAC Executive Director

No matter how this sad episode ends, the truth must be made public and RailPAC must have its reputation restored.